Sensex was meant to denote the most popular market index of 30 companies listed under the Bombay Stock Exchange. The component companies listed in this index today are some of the biggest companies in this country with the most actively traded stocks.
Ever since opening up in the 1990s, it has witnessed rapid growth, especially post-2000. For instance, in 2002, information technology companies helped the index cross the 6,000 mark for the first time. This growth curve can be owed to a rapid increase in India's Gross Domestic Product (GDP), since the turn of this century.
Some of the companies under this index include:
BSE modifies Sensex share composition from time to time to ensure that it reflects the current conditions of the stock market. At first, the index was calculated based on a weighted methodology of market capitalisation. However, since 2003, this calculation method was reformed and now integrates a free-float capitalisation method.
The original method used the total outstanding shares of a company to calculate the index — including restricted shares held by insiders that are not available for public trade.
The reformed method uses only the shares available for public sale, excluding restricted stocks held by company insiders. This gives a more accurate picture of the market's actual tradeable value.
According to this free-float capitalisation method, the index level always demonstrates the free-float value of the 30 listed companies under Sensex, relative to a base period. This method does not integrate restricted stocks — ones held by company insiders — which are not available for sale.
The S&P BSE Sensex comprises the following 30 companies, representing key sectors of the Indian economy.
The world economy faced a major crisis between 2008 and 2009 with a fall in the Dow Jones Industrial Average during intraday trading, leading to a global stock market crash. This adversely affected India's stock market and led to a loss of 1,408 points on 21st January 2008 — its highest single-day fall since inception. The very next day, the index went into a downward spiral with trading suspended for an hour.
From January to November 2008, the index continued to drop consistently, throwing the entire market into uncertainty. In October 2008, the market closed at 8,509.56 points — its lowest level in the previous 10 years.
In 2009, the index dropped by almost 750 points due to the Satyam fraud scandal, which sent shockwaves through the market and threw investor confidence into turmoil.
These events highlight how global economic shocks and domestic corporate frauds can severely impact market sentiment. Understanding past plunges helps investors make more informed decisions and prepare for market volatility.
